UK: Forward Thinking: A Briefing for Entrepreneurs and Executives in Commerce and the Professions - February 2006

Last Updated: 7 April 2006

London 2012 Olympics: On Your Marks….
Article by Andrew Bond

The 2012 Olympics and Paralympics will be the largest sporting event ever staged in the UK and should, in theory at least, provide a massive opportunity for a wide range of businesses in London and across the UK.

Local impact

The 2012 Games will breathe new life into a high-priority regeneration area in East London. To put this into context, overall the tangible benefits of the Sydney Games in 2000 have been estimated to be worth more than A$6.5bn (£2.75bn) in economic activity over a 12-year period.

Local employment, affordable housing, training initiatives, section 106 agreements, community health and education are all key considerations in the planning going forward on which the LDA has been working with the five Olympic boroughs (Hackney, Newham, Tower Hamlets, Waltham Forest and Greenwich).

Companies that win contracts for the Games will be asked to use reasonable endeavours to source employees locally.

Beyond London

Beyond London, many expect to benefit. In addition to the business opportunities mentioned above, there is the added incentive of hosting pre-Games athlete preparation camps and other elite pre-Olympic sports events, such as world championships.

More than 200 nations will compete in the Games and national governing bodies for each country’s sport will decide where they will train before the Games. Hosting a training camp can be lucrative; before the Sydney Olympics, 125 teams from 39 countries trained in New South Wales, investing A$70m (£30m) into the state’s economy.

Existing elite sports centres could prove attractive to visiting teams and the prospect of hosting teams for months leading up to the Games may act as a catalyst for development elsewhere. The preliminary rounds of the football competition will also be held at stadiums across the UK and even the Olympic torch tour in 2012 – possibly lasting several months – is likely to involve most cities and towns across the country.

A Nations and Regions Group has been set up to maximise the benefits of the 2012 Games for the whole of the UK, and London 2012 is producing more information for towns and facilities interested in hosting visiting teams.

Who is running the games?

The three key stakeholders in the Olympics – the Mayor of London, the Government and the British Olympic Association – share ultimate responsibility for delivering a successful Games. The Games will be run by the London Organising Committee for the Olympic Games (LOCOG) – also trading as London 2012 – chaired by Lord Coe and recently joined by Paul Deighton, formerly chief operating officer of Goldman Sachs European Businesses, as chief executive.

A separate Olympic Delivery Authority (ODA), under chairman Jack Lemley and chief executive David Higgins, and accountable to the Government and the Mayor, will manage public spending on venues and infrastructure. The LDA has been doing the work of the ODA on an interim basis while the latter is set up.

An Olympic Board, currently composed of Lord Coe, Olympics Minister Tessa Jowell, Mayor of London Ken Livingstone, and BOA Chairman Craig Reedie, will co-ordinate the work of LOCOG and the ODA, both of which will be based at Churchill Place, Canary Wharf.

Business opportunities

Clearly the most immediate effect of London’s successful bid will be on the construction industry. In addition to East London, construction projects will take place throughout the UK and will include demolition, site clearance, specialist surfaces and high-tech multimedia facilities. Conservative estimates value the total build in excess of £4bn. There will also be business opportunities after the Games when post-Games legacy development begins.

Most supply chain business opportunities for small and medium sized businesses will start from 2007 onwards, once the main construction contracts begin. The ODA will provide more information on business opportunities and advertise tenders for the Games from 2006 onwards.

The LDA began the process of procurement for a number of large contracts connected with the delivery of the Olympic Park prior to the bid decision, including for the design of the Olympic Park and infrastructure (excluding venues), site-wide development of the Olympic facilities, demolition and remediation. J Murphy & Sons Limited was recently awarded the contract to construct tunnels to replace the overhead power lines that currently cross the Lower Lea Valley. Work on the £250m Olympic stadium itself will not begin until 2008 and, while the general concept used in the bid is unlikely to change drastically, architects will be invited to tender for the final design brief.

Completion dates have been staggered, with the Aquatics Centre due to be finished by 2009, the Velopark by 2010 and the main stadium by 2011 in time for test events.

A draft procurement strategy is expected soon and a detailed schedule of contracts later this year. Contracts expected in the next 12 months relate to design and land clearance, but other construction contracts are unlikely to be put out to tender until 2007.

Closer to 2012, LOCOG will procure services to run the Games and install temporary facilities. Most of these contracts will not be tendered until 2008 onwards.

So what should businesses be doing now?

The LDA is drawing up a number of initiatives to help SMEs benefit from the Olympics. A proposed Olympic Intelligence Unit will provide information on likely future contract opportunities. The LDA is stressing that in order to increase the chances of winning contracts, SMEs need to be ‘fit to supply’ (see www.

It recently announced new funding to help businesses benefit from the 2012 Olympics in the face of research which revealed that most small companies are unclear about how to go about winning contracts and fears that big companies will monopolise the major deals. As part of this initiative, a 2012 Business Club will help firms reap the benefits of the event, while a construction support initiative will assist developers in maximising local recruitment.

The LDA says that Regional Development Agencies (RDAs) outside London will be able to assist small businesses to access these opportunities and will be developing more tailored support initiatives such as Olympic business clubs geared to the needs of the Games.

Most SMEs will be used to forecasting and preparing business plans, but often these will be relatively short term. If businesses are to take full advantage of the Olympic opportunities, they not only need to start developing an appropriate plan, but forecasting the implications of a successful contract bid, in some cases over a number of years. This may well require a more detailed approach to forecasting resource requirements and the impact on the business.

The facts

  • The centre-piece of the 2012 Games will be the 500-acre Olympic Park in Stratford, East London. It will include the main 80,000-seater Olympic Stadium, Aquatics Centre, Velodrome and BMX track, four sports halls, hockey centre, Olympic Village and brand new media facilities. Most of the venues will remain after the Games.
  • 17 of the 28 Olympic sports will be staged within a 15-minute walk of the Olympic Village. Wimbledon and Lord’s Cricket Ground, the lake at Eton Dorney and the historic Royal Artillery Barracks in Woolwich will also be used, as will the Dome in Greenwich. Events outside London will include football, sailing, rowing, canoeing and mountain biking, mainly using existing venues.
  • The proposed £2.37 billion cost of the venues, transport and infrastructure for the Games will be funded by £1.5 billion from an Olympic lottery game; £250 million from the London Development Agency (LDA); and £625 million from council tax increases from April 2006.
  • 7,000 construction jobs are expected to be created before the Games, in addition to thousands of other jobs before, during and after the Games in IT, transport, catering, hospitality, professional services and other sectors, as well as a major boost for tourism throughout.
  • Up to 70,000 volunteers will be required to run the Games, requiring the biggest peacetime volunteer recruitment drive ever seen in the UK. The Games will leave a legacy of up to 9,000 new homes, more than half in the Olympic Village itself.

London 2012 Timetable


60% of venues are already in place


New Wembley opens; contracts announced for Olympic Park


Channel Tunnel rail link to Stratford ready; land assembly and associated relocations complete


Aquatics Centre and Velopark finished


World Gymnastics Championships staged at O2 Arena (Millennium Dome)


East London Line extension finished


Olympic Stadium ready for test events


Olympics 27 July to 12 August; Paralympics 29 August to 9 September

Financial Services Firms Back London
Article by Giles Murphy

Confidence within the financial services sector is at a three-year high, and the outlook for 2006 is even better, according to Smith & Williamson’s 7th annual survey of FSA-regulated firms, conducted during October-November 2005.

A resounding 85% of firms reported that 2005 appeared to be a better year than 2004, and 80% thought their businesses would grow further in 2006. Two-thirds of firms said that they expected to be paying bigger bonuses in respect of 2005 than for 2004.

The survey results appear to underline the financial services sector’s faith in London as a financial centre, in spite of the July 2005 terrorist attacks. The overwhelming majority (87%) of firms felt that a possible terrorist threat did not diminish the importance of London as a financial centre, and less than 10% said they had considered relocating.

The only dark clouds on the horizon appear to be fears of an increasingly harsh tax system.

Where’s the Value in an Audit?
Article by David Hunt

At a time when audit fees are set to rise as International Auditing Standards take hold, David Hunt re-examines the value that SMEs derive from an audit.

As many companies engage in annual fee discussions with their auditors, a large number will be faced with the prospect of fee increases well in excess of the RPI.

This prompts two key questions. Firstly, are fees increasing across the board and why? And secondly, what do companies really get for their money?

It is an inescapable fact that audit fees are likely to rise for most SMEs in the immediate future. In part this is due to the need for audit firms to compete in the recruitment market by providing adequate salaries, which form by far the largest element of total audit costs. Salaries aside, however, the principal factor behind higher audit fees is the extraordinary increase in regulation and new, mandatory and highly prescriptive requirements – the new International Standards on Auditing and Ethical Standards among others. This requires increased technical support and training for all audit partners and staff.

It is hard to recall a period during which so much new auditing and financial reporting regulation has come into force. And this at a time when the vast majority of SMEs have yet to feel the effect of International Financial Reporting Standards under which all listed companies are reporting for 2005.

Under the circumstances it is reasonable for companies to question the value they obtain from the audit. We believe the answer lies in the following three key areas.

1. Reassurance

The accounts department or finance function in SMEs often consists of a mere handful of staff, often under pressure to prepare financial data to shorter and shorter timescales. With limited scope and time for internal checks of each others’ work, there is the ever-present danger of financial error, whether unintentional or (unfortunately) intentional.

The auditors’ primary role is to act as guardian against misstatement in a company’s accounts. No-one likes surprises, especially in connection with their finances. It is highly likely that there would be a great many more surprises in the absence of auditors and their independent opinion.

2. Independent sounding board

It is fundamental that an audit is underpinned by an appreciation of a company’s operations, the risks it faces and its prospects. To achieve this understanding (required in any case by auditing standards) the auditor needs to invest the necessary time with management. Clients should take full advantage of this independent viewpoint for advice and feedback.

Although formal comments arising from the audit should, and normally do, form part of the audit completion process, companies should not rely on these alone. Auditors have a unique perspective on the business and, where there is a strong audit relationship and regular contact between management and the audit team, companies should be able to gain genuine value from the auditors’ observations and to use their auditors as an informed sounding board.

3. Third party use of audited accounts

Finally, and often taken for granted, is the value of audited accounts in a company’s dealings with the outside world. All UK companies’ accounts are readily accessible through the Companies House website. Credit agencies, potential and existing suppliers and customers make reference to company accounts for various purposes. Providers of debt finance in particular are avid users of companies’ audited statutory accounts to ensure compliance with facility arrangements and conditions. This is in addition to the obvious interest of investors in a company’s financial well-being and prospects.

Whilst auditors do not assume responsibility to any parties other than the company itself and its members, other interested parties will certainly believe that their decisions are based on accounts free from misstatement. They are free to refer to the audit opinion and can and do take comfort from it. The commercial community at large would not take some of the decisions they do without sight of accounts that they are confident have been subject to audit.

In summary then, despite increasing costs, we contend that auditors and audited accounts provide considerable and tangible benefits both to management internally and in their dealings with investors and other outside parties provided, of course, that companies work with audit firms which provide a robust audit and which, at the same time, understand their clients’ needs.

Debt Finance
Article by Gerry Milligan

Gerry Milligan of GGW Corporate Services gives advice from the borrower’s corner

The revolution in financial services over the last 15 years or so has resulted in an industry virtually unrecognisable from the one that existed prior to the mid-1980s.

The banking industry in particular has gone through a metamorphosis, with greater diversity in product offering, a mass of branch closures, call centres overseas, increased competition, a more aggressive sales culture and so on – bank manager R.I.P!

The borrower-lender contest

One thing which has not changed however is the unease often felt by businesses when it comes to raising new debt finance. The experience is not always fatal – longstanding clients, with debt requirements which fit neatly into the bank’s current credit policies, should not worry unduly. Regrettably though, many proposals – at face value at least – do not fit so neatly. Poor presentation and analysis on either side can lead to frustration, acrimony and even confrontation. So begins round one of a difficult bout – in the red corner the aggrieved borrower who believes his business acumen and integrity are being disparaged by a weightier opponent; in the blue corner the mightier and more experienced banker who rarely suffers ring fatigue and stubbornly holds his position. Naturally the odds are heavily stacked towards a knock-out win for the latter in the 2nd or 3rd round.

Getting the borrower into shape

It is a disappointing fact that many inherently sound transactions do not reach the ‘credit approved’ stage. Rather than apportioning blame, from a borrower’s perspective we need to focus on a strategy which is likely to facilitate a more positive response from the lender, on terms and conditions that are sensible.

Banks are not all the same. They will have their preferred sectors and these are subject to constant change, with appetite constrained by poor experience and/or capacity. This may restrict a bank’s willingness to support new or increased facilities, but if it does, it will often be on more expensive and onerous terms than those offered by a competitor with a deeper understanding of and commitment to the sector.

Presentation, presentation, presentation

Presentation is crucial and while it can never make up for a fundamentally weak proposition, it can destroy a strong one. Transactions often fail because they have been poorly communicated to frontline lenders who in turn fail to win the support of their credit committee since the transaction was not sufficiently understood or well presented in the first place. The business plan needs to tell the story well and to stand up to rigorous quantitative and qualitative analysis. These days, frontline lenders, whatever they’re called – and they go by various names (relationship directors, vice presidents, partners, senior partners, senior managers and the rest) are largely rewarded on the volume of loan business written. Time is precious and the line of least resistance will govern its allocation. Complexity is time-consuming and therefore making life simpler and easier for the lender will be welcomed.

The demise of the overdraft

The branch manager is long deceased. The overdraft’s pulse is also weakening rapidly and whilst many will mourn its demise, in reality, more appropriate mechanisms to fund working capital have been developed. These mechanisms not only find greater favour with the banks from a risk-management perspective, they facilitate the release of more cash into the business than would have been available within a traditional overdraft arrangement. Indeed, products developed initially to fund growth – invoice discounting in particular – now underpin a range of transactions such as MBOs, MBIs, Bimbos and acquisitions. Structuring the proposal appropriately is therefore paramount.

The moral of the story

From the writer’s perspective, as a gamekeeper turned poacher, whereas formerly asset quality was key, the prime responsibility now is to ensure businesses have the financial resources to support their business activities and growth aspirations. At times, these can seem mutually exclusive but through a strategy which identifies the most appropriate lending institution and then communicates the transaction well, it may be that the gloves can come off!

Gerry Milligan is a director of GGW Corporate Services Limited, which provides a range of specialist financial services to businesses, including advice on debt structuring and refinancing, foreign exchange, risk management and insurance.

Gerry was formerly with Bank of Ireland, where his career encompassed heading both the UK Construction and Property Development business and the Corporate Banking team in London. In addition, he spent a number of years as a foreign exchange trader.

Pensions Simplification ..Be Prepared
Article by Peter Maher

The much heralded pensions simplification is now just around the corner – 6 April 2006 to be precise (or A-day). This new legislation aims to simplify the tax regime for pension arrangements and to make the tax limits easier to understand. This means that some existing requirements are changing, and employers will need to make some amendments to their schemes to comply.

Will members be allowed to make AVCs?

Whilst schemes will no longer be required to offer an AVC facility to members from 6 April 2006, many schemes may elect to retain it.

Under the new regime, most people will be able to put more money into their pension arrangements.

For schemes which offer additional years of pensionable service, rather than money purchase benefits, this may not be at all attractive for employers, as they will have to underwrite the larger final salary promise.

Will the scheme comply with the new ill-health retirement rules?

Schemes will need to meet a new two-part test (which differs from the current requirements):

  • the scheme administrator must obtain evidence from a registered medical practitioner that the member is (and will continue to be) incapable of carrying on his occupation because of physical or mental impairment; and
  • the member must cease to carry on his occupation.

The first of these changes will have the biggest impact on scheme administrators (usually the trustees), who should check scheme rules in order to establish whether or not they comply.

How much flexibility will be afforded to members?

Retirement will become much more fluid. Members will be able to draw their benefits whilst continuing to work for the same employer (at the moment, this option is only available to pre-1987 scheme members). They can even take a tax-free lump sum and draw a pension later. This should enable more people to reduce their hours as they get older yet allow companies to retain experienced staff.

However, scheme rules will need to be amended to allow for such flexibility. Employers and trustees should discuss how much flexibility will be afforded to staff.

How much will members be able to commute to a tax-free lump sum?

Most people will be able to commute a higher proportion of their pension to a lump sum than current rules permit.

Broadly, 25% of pension value may be commuted, although there is a fiendishly complicated formula to determine the precise amount.

Trustees and employers should decide whether to amend the rules to allow members to make the most of this change. This is also a good time to review the scheme’s commutation factors to make sure they are still appropriate.

Currently, AVC benefits accrued after 1987 cannot be commuted for a tax-free lump sum. From A-day, there will be no such restriction, provided the scheme rules allow. For those members with money purchase AVCs, it may well be more attractive to commute their AVCs rather than purchase an annuity or a scheme pension.

Will five-year guarantees need to change?

Currently, if a member dies within five years of retirement, many schemes will pay a lump sum to cover the outstanding pension instalments. From A-day, such guarantees must be paid as pension, although the guarantee can continue for up to ten years. Any lump sum guarantee for a member already in receipt of a pension at A-day can continue. Employers and trustees will need to review any lump sum promise to provide for payment as a pension.

Will scheme rules reflect restrictions imposed on children’s pensions?

Children will be deemed to cease to be dependent (and therefore eligible to receive a dependant’s pension) once they reach the age of 23. The exception to this is if the child is dependent on the member at the date of his or her death because of a physical or mental impairment. This is different from the current position – children remain dependants after the age of 18 if they are still in full-time education or vocational training. Whilst there is no contractual obligation to continue to pay a pension until the child reaches age 23 (although this is something which employers and trustees may want to consider) the rules should be amended to reflect the new cut-off date and this should be communicated to members.

Are current death-in-service benefits still appropriate?

The only restriction on death in-service lump sum benefits will be the lifetime allowance. This is considerably more generous than the current limit. Some schemes may want to offer members a higher lump sum on death in return for a lower dependant’s pension (subject to contracting out requirements).

Is doing nothing an option?

Most pension scheme rules refer to current Revenue limits. Typical wordings such as ‘subject to Inland Revenue limits’ and ‘or such greater amount as the Revenue may allow’ are likely to be scattered through scheme rules. This will become meaningless after A-day and could, by default, grant some members much greater benefits than originally intended.

The Government has produced some draft regulations which will modify pension scheme rules until 2011, but these will not necessarily solve all of the problems.

For example:

  • Any scheme rule which requires the trustees to make an unauthorised payment (i.e. one which would incur tax) will be construed as a discretion on the trustees (and not the employer). Trustees of schemes with sufficient funding may find it difficult not to exercise their discretion in favour of the member. Employers will be powerless.
  • It is not at all clear that the draft regulations cover pension terms in employment contracts. It is therefore likely that they will not be amended. Many such pension terms include wordings which would restrict the promise to Inland Revenue limits. This will become meaningless after A-day and could result in senior people having an unrestricted (and unfunded) promise.

Employers should review their employment contracts as soon as possible and agree any amendments with the employees concerned.

The regulations are however still in draft.

Salary Sacrifice – A Tax "No Brainer"?
Article by Inez Anderson

Inez Anderson on salary sacrifice schemes and how to get them right.
All employers want to ensure maximum benefit is obtained from the cost of their salary bill.

One key factor in achieving this is to ensure that the benefits being provided are aligned with the needs of the business and are being delivered in the most tax and National Insurance (NI) efficient way. To this end, salary sacrifice arrangements have become increasingly popular in recent years. These schemes are beneficial because of the potential NI savings for employers and their employees and, in some cases, income tax saving for the latter. Salary sacrifice is a well-trodden path which the tax authorities understand and accept in principle as well as practice, provided the arrangement and documentation are properly set up and administered.

The benefits

Employees can save up to 11% NI depending on salary and the employer will save 12.8% NI on the salary sacrificed. It is usual for employers to at least share its savings with employees rather than retain all the savings, since this does not provide an incentive to employees to participate.

Some of the more common benefits over which salary sacrifices are offered include home computers, bicycles, mobile phones, childcare provision and, perhaps most significantly, contributions to employees’ personal pension funds. Many organisations also allow employees to sacrifice discretionary bonus payments.

How does it work?

Under salary sacrifice, an employee gives up the right to receive part of his or her cash salary in return for the employer’s agreement to provide some form of non-cash benefit. The employee must agree to give up their contractual right to future earnings; it is not acceptable to HM Revenue & Customs (HMRC) for an employee to merely ask the employer to apply part of their cash earnings to a non-cash benefit. The original salary is normally retained as a ‘notional’ salary figure and used as a reference salary.

Ideally, to comply with the published guidelines, contracts of employment should be amended to reduce future cash earnings for a minimum period of 12 months. In practice, a written agreement between the employee and the employer will usually suffice.

The agreement should include a clause for the salary sacrifice to be terminated early in the event of a change in circumstances and should be reviewed by an employment lawyer.

If entitlement to a discretionary bonus is being sacrificed, it is important that sacrifice is made prior to the employee having entitlement to the bonus.

HMRC will not advise on setting up a salary sacrifice scheme but will confirm the correct tax treatment once it has seen evidence of the variation of the contractual terms and conditions. HMRC will also expect to review payslips before and after the variation of the terms.

Avoiding the pitfalls

Assuming salary sacrifice is properly executed, the pitfalls are minimal but should not be ignored. It must be remembered that by entering into a salary sacrifice agreement, individuals are unconditionally giving up the right to some of their income. The company may pay the equivalent amount into a pension scheme on the individual’s behalf, but salary is reduced for all purposes, and this can impact the level of benefits that can be taken. For example, where members of an occupational pension scheme are close to retirement, salary sacrifice may reduce the final salary pension or the tax-free cash available.

Associated risk benefits such as death in-service or income protection might also be affected. State benefits such as Working Tax Credits, Child Tax Credits, the State Second Pension and Statutory Sick Pay may be restricted. Anyone on the minimum wage should be excluded from salary sacrifice, for obvious reasons.

Salary sacrifice – getting the basics right

  • calculate the amount of the NI saving that could be achieved
  • check the pension scheme trust deed if necessary
  • share some or all of the NI savings with employees
  • explain salary sacrifice carefully to staff
  • review contracts of employment
  • check and double check all calculations
  • provide relevant documentation to HMRC

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.